Life Insurance: Viatical Settlement Basics

Selling your life insurance policy under a viatical settlement may have many benefits, but it will pay to research and compare bids first

Viatical and Senior Settlements are fairly new in the business and are similar in many ways. In fact, some states are very ambiguous in their definitions of both. You'll also find many discrepancies when researching companies and brokers. In addition, each state has different requirements and some require licensing while others allow for self-regulation.

In many states, the face value of the policy must be at least $20,000. The policy owner may not necessarily be the person named on the policy, but the owner is the only individual (in some cases an organization or a trust) who can make application for a viatical. Typically, too, the policy must be at least two years old. Other variances by state may apply.

How is a Viatical different from a Senior Settlement?

In general, a viatical settlement can be negotiated if the named person on the policy - also known as the "viator" - is in a terminal health state that may result in death within a few months (and sometimes up to seven years). A Senior Settlement can be negotiated when a person aged 65 or above (in general) is in relatively good health but with a medical condition that would indicate a lifespan of 15 years or less.

Life-threatening illnesses that are considered under viaticals include:
- Cancers (mesothelioma, ovarian, prostate, testicular, bone, breast, cervical, colon, etc.)
-AIDS
-Alzheimer's
-Heart Disease
-Hepatitis C

This is not a definitive list. If you are diagnosed with any type of life-threatening illness, you may be eligible to negotiate for a viatical settlement.

Keep in mind that the primary intent of most viatical settlements is to assist with medical needs or living expenses. In many cases, the terminally ill are on fixed incomes. Life insurance premiums may have become unaffordable and a cash settlement will alleviate both the monthly payments and some of the burden of illness. In addition, the financial payout may help the named individual to make final arrangements - and be confident that they will be carried out. Pre-payment for funeral services and burial will alleviate the burden on family at a later date.

What to consider in a Viatical Settlement

You will want to be sure the payoff is in one lump sum. If a company can no longer pay installments for any reason, it will be difficult to re-sell the policy elsewhere.

Be sure the broker is licensed to operate in your state. A Viatical and Life Settlement Association of America membership also upholds a code of ethics.

As with Senior, or Life, Settlements, there is a rescission period that may be with 15-30 days of the policy transfer. You can change your mind with no further consequences and should you die before that time, the financial transaction is negated.

You will want to discuss the benefits and drawbacks of a viatical settlement with your spouse and/or children. Will they be taken care of after you are gone? Or will it be more beneficial to cash in the policy and dispense leftover funds now?

Always consult a tax adviser or knowledgeable attorney to determine if a Viatical Settlement is right for you.